What taxes do I have to pay?

One of the primary taxes that the deceased estate has to pay is inheritance tax.

Whilst the percentage of inheritance tax may seems pretty high – at 40% – you only need to pay this when the price of the property is above a given threshold, which is currently £325,000 for an individual or £650,000 for a couple.

New for the year to 5th April 2018 was the additional ‘main residence’ allowance.

You’ll get this on top of your existing allowance.

Known as the residence nil rate band, it’s only valid on a main residence and where the recipient of a home is a direct descendant (classed as children, step-children and grandchildren).

For the year to 5th April 2019 this is £175,000 and increases by £25,000 in the next year.

Therefore, most people end up paying much less than the stated 40% on their inheritance tax.

Another tax that applies when you sell the inherited properties is capital gains tax.

This means that if the property increases in value from the time that you have inherited it, to the time that you sell it, then you are taxed on the gain.

For example, if you inherited a £200,000 property, but you sell it for £250,000, then you will be taxed on the £50,000.

The capital gains tax can be anywhere between 18% and 28%, depending upon a many factors, mainly whether you are a basic rate taxpayer or higher rate taxpayer.

If you inherit a property that is worth £200,000 and it remains at this price when you sell it, then you will not have to pay any capital gains tax.

There are also many ways that you can pay less capital gains tax on the property, and we’ve noted them down here for those wanting to get the most out of their inherited properties.

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How much do I actually pay?

You will pay a different amount of capital gains tax on an inherited property, depending upon how much you earn, and how much you have spent on the property since.

Whilst this can be quite confusing, we’ve put together an example here, so that you can see how much you’d probably be spending out on your capital gains tax, depending on what kind of property you inherit.

Let’s say you inherit a property

If you inherit a £200,000 property, for example, and you sell it for £300,000, then theoretically you can be taxed for the gains of £100,000.

However, you can include any costs – and let’s say that your costs were around £17,000, for all of the legal fees, and any renovations that you have done.

With the personal allowance of £12,000, you would end up with £71,000 that would be subject to capital gains tax.

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Are there any changes in the 2019/2020 tax year?

In year to 5th April 2020, the personal allowance with regards to capital gains tax went up to £12,000, and is likely to go up again in 2020.

This is, therefore, something that you would have to incorporate into your calculations, meaning that you will likely get more tax-free in the following year when it comes to capital gains.

The tax rates are also subject to some change, so it’s a good idea to keep an eye on these if you can.

With the increase in personal income allowance and capital gains allowance, you will be paying less tax overall, although this will only be reduced slightly.

Again, these things are constantly subject to change, so keep an eye on them, and see whether there would be a better time for you to sell your inherited property, where you can spend less tax overall.

Talking to our team at Wagners could help you to find the best solution for you.

How do I work all of this out?

Whilst you could sit there and work all of this out yourself, it is pretty complex, with some valuable reliefs that are easy to miss and why should you spend hours trying to figure out all of your taxes?

Instead, you could use our capital gains adviser, to see how much you’ll have to pay given your personal situation.

This is a useful contact, as it gives you an idea how much you’ll be paying out for your inherited property, ensuring that you’re not faced with any nasty surprises.

Whilst inheriting a property can be the result of an upsetting time, you still deserve to get the most out of what has been left to you.

Capital gains tax adviser

At Wagners, we can give you up-to-date tax advice, so that you don’t need to worry about the property that you’ve inherited.

In fact, we’ll go out of our way to make the process as easy as possible for you, so that you don’t need to stress about a thing.